Joye v Rehuxo & Ors

COUNSEL : Plaintiffs/Cross-Defendants: Mr F Douglas QC + Mr J Stoljar 2nd - 3rd Defendants: Mr R Smith SC + Mr J Lockhart SOLICITORS : Plaintiffs/Cross-Defendants: Speed & Stracey 2nd - 3rd Defendants: Norton Smith & Co CATCHWORDS : Practice and procedure - notice to produce - subpoena - appeal from appellate decision of Master - application of Pt 23 r 3 and Pt 36 r 16 of Supreme Court Rules - standing of third party to oppose notice to produce or subpoena - Pt 37 r 8 - not "too wide" . CASES CITED : Compsyd Pty Ltd v Streamline Travel Service Pty Ltd (1987) 10 NSWLR 648 DECISION : 1. Appeal dismissed with costs. 2. Cross-appeal allowed with costs. 3. Order 2 made by the Master dismissing the cross-appellant's appeal from the Registrar as far as it relates to the notice to produce to Bowyang and subpoena to County be set aside. 4. The cross-appellants' appeal to the Master from the decision of the Registrar relating to the notice to produce to Bowyang and subpoena to County be allowed. 5. Order 3 of the Master be set aside, and in lieu thereof, order that the plaintiffs and cross defendants pay the costs of the second and third defendants of the appeal before the Master.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4118/97 JUDITH OLGA JOYE, CHRISTOPHER RONALD EDWARD JOYE v REHUXO PTY LTD & 4 ORS

REASONS FOR JUDGMENT 1 These proceedings are an appeal and cross-appeal brought against the decision of Master Macready given on Wednesday 28 October 1998. The appeal is brought by the plaintiffs, Judith Olga Joye and Christopher Ronald Edward Joye, the second cross-defendant, Ian Edward Joye ("Joye") and the third cross-defendant, Robert Eric Horsell ("Horsell"). The cross-appeal is brought by the second and third defendants, David Bradley and Susan Bradley ("the Bradleys"). 2 The proceedings before the Master were also in the nature of appeals from a decision given by a Registrar on 20 May 1998. The Registrar had made orders in respect of a substantial number of notices to produce and subpoenas which had been issued in these proceedings. Notices of motion had been brought by the present appellants and cross-appellants seeking the setting aside of a number of decisions of the Registrar. The Master made several orders in respect of these notices of motion. The current appeals before me relate to some only of those orders. In dealing with these appeals, it is necessary, at this stage, to make some reference to the dispute between the parties and the pleadings in the case. 3 The plaintiffs are the wife and son, respectively, of Joye. At all relevant times Joye was an accountant and company promoter. Horsell was employed, as an accountant and company secretary in a number of companies controlled by Joye. The third defendant, Susan Bradley, is the sister of Joye and the wife of the second defendant, David Bradley. 4 Central to the dispute between the parties is a trust referred to as "the Susan trust". Despite its importance, there is, apparently, no document, such as a trust deed, evidencing its terms. In the pleadings it is the subject of major dispute, the plaintiffs alleging that it was established by Horsell on the instructions of Joye in 1983 for the benefit of the plaintiffs, while the Bradleys allege, in the cross-claim, that it was established in 1977 for the benefit of Susan Bradley and her children. 5 It is common ground, that since 1983, the trustee of the Susan trust has been a company known as Rehuxo Pty Ltd ("Rehuxo"). There is also no dispute that from 1983 until 1997 the Bradleys were the only directors and shareholders of Rehuxo and that Horsell was the company secretary from 1983 until March 1993. It is asserted by Joye that the Bradleys were not intended to have any role in relation to Rehuxo other than to act in accordance with his directions. 6 It is asserted by the plaintiffs that Joye obtained from the Bradleys signed transfers in blank of their shares in Rehuxo and also signed letters of resignation of their directorships. These were obtained and kept by Horsell on Joye's behalf to ensure that the Bradleys complied with his directions in relation to Rehuxo. 7 The Bradleys deny that the documents were furnished for this specific purpose. They assert in their cross-claim that the documents were provided solely to enable Joye to undertake on their behalf, from time to time, dealings in company shares other than Rehuxo. They allege that Joye acted as their adviser in relation to financial matters, that he had fiduciary obligations to them, and that his attempted use of these documents to remove them from the control of Rehuxo was a breach of those fiduciary obligations. 8 In 1997, the parties then being in dispute, Joye arranged for the transfers to be completed by the insertion of the plaintiffs as transferees. The transfers so completed were forwarded to Rehuxo for registration. Registration was refused. Accordingly, the plaintiffs seek in these proceedings orders that the documents be registered. They also seek declarations that resolutions passed for the appointment of new directors are valid and that assets held by Rehuxo are held on trust for the plaintiffs. 9 Allegations are also made that during the period of their directorship, the Bradleys, in breach of their fiduciary duties, used funds in Rehuxo for their own benefit. Equitable compensation is sought in respect of these alleged breaches. 10 The Bradleys, for their part, deny the alleged breaches and assert, by way of cross-claim, that the Susan trust was established for the benefit of Susan Bradley and her children and that they are entitled to remain as directors and shareholders of Rehuxo. They allege that Joye and Horsell have dealt improperly since 1983 with the assets of the trust without their knowledge or consent. In particular they allege that shares in other companies held in trust by Rehuxo, or on Rehuxo's behalf, have been transferred by using transfer documents irregularly executed by Horsell at the direction of Joye and without the authority of Rehuxo. They allege, in effect, that without their knowledge or consent, Joye has used Rehuxo and its assets for his own purposes from 1983 onwards and, in particular, at the time when it was sought to register transfers in favour of the plaintiffs, that he was seeking to utilise a portion of the trust assets for the purpose of a settlement with his wife, Judith, in matrimonial proceedings, resulting from the break up of their marriage in May 1994. 11 Joye, at all relevant times, used as his stockbroker, County Natwest Securities Australia Ltd ("County"). That company had a nominee company used in its business on its clients' behalf. This company was Bowyang Nominees Pty Ltd ("Bowyang"), which is the fourth defendant in these proceedings. 12 It is convenient to refer, also, at this stage, to the company, Asian Properties Ltd ("APL"). This company is listed in New Zealand. It was formerly called Coronet Far East Ltd and was a company in the Coronet group of companies in which Joye had substantial interests and which, apparently, he controlled. From time to time shares were held by Bowyang in trust for Rehuxo and the Susan trust at the direction of Joye and Horsell. 13 Prior to September 1997, the principal asset of the Susan trust was a shareholding of 3.15 million shares in APL. In that month a capital reduction was undertaken which resulted in the Susan trust's principal asset being the proceeds of the reduction. These amounted to approximately $3.8 million. 14 The pleadings in the matter are lengthy and complex. They clearly raise issues as to the identity of the beneficiaries in, and the terms of, the Susan trust. Issues are also raised as to whether Joye, through Horsell, caused shares to be removed from the assets of the trust and used for other purposes without the knowledge and consent of the Bradleys as the directors and shareholders of Rehuxo. There is also a related but distinct issue as to Joye, by way of unauthorised dealings with shares held by Bowyang as nominee for Rehuxo as trustee of the trust, caused such shares to be diverted to his wife, the first plaintiff, in part fulfilment of the terms of the divorce settlement. 15 There is also a dispute as to whether movements of assets in and out of the Susan trust occurred without the knowledge and consent of the Bradleys, in circumstances where they seek indemnity from Joye and Horsell, should it be asserted that these dealings involved any breach of fiduciary obligations, on the part of the Bradleys as directors of Rehuxo. 16 Against this background I turn to consider the notices of motion, the subject of the Master's decision and of this appeal. 17 It is convenient to consider, in the first place, notices of motion issued on behalf of Joye seeking to set aside a notice to produce served by the Bradleys on Bowyang and a subpoena in identical terms served upon County. The relevant notices of motion were upheld by both the Registrar and the Master. Both the notice to produce and the subpoena were ultimately set aside as being too wide. There were, however, two preliminary issues for decision. The first was whether the notice to produce and subpoena were issued in breach of Pt 23 r 3 of the Supreme Court Rules. The second was whether Joye had standing to seek the setting aside of the notice to produce and the subpeona. 18 Both the Registrar and the Master found that Pt 23 r 3 did not preclude the issuing of the notice to produce and the subpoena. Each, also, found that Joye had standing to bring the notices of motion. Both these questions were raised again in the appeal. 19 As to the first I am satisfied that the Registrar and the Master were correct in holding that Pt 23 r 3 did not have the operation contended for. It was asserted that since the proceedings had been commenced after 1 October 1996, Pt 23 r 3 applied and required that the process should seek the production of specified documents clearly identified and also that the number of such documents should not exceed fifty. Pt 23 introduced a new regime for discovery. However, no alteration was made to Pt 36 r 16 pursuant to which the notice to produce was issued. 20 The Master dealt with the question as follows : "Part 36 Rule 16 is directed a different matter, namely, the use of the equivalent of a subpoena where a party requires production of documents at a trial or, with leave of Court, on any earlier day before some person appointed. The rule involves the Court in the process whereas the production under Part 23 is merely inter-parties' production. In the present case the Notice to Produce is in accordance with is (sic) Form 45 which form is said to be for the purposes of Part 36 Rule 16. There may well be force in the submission that the use of the Notice to Produce procedure provided for in Part 36 Rule 16 might lead to an abuse of the procedures in Part 23. However, on the rules as they presently stand, they are different procedures and there was no change to Part 36 Rule 16 when the new provisions of Part 23 were introduced. It seems to me that this is more a matter for consideration by the Rule Committee if it appears that Part 36 Rule 16 is becoming the subject of abuse." 21 I consider that the Master's reasoning is correct. Accordingly, the notice to produce should not be set aside on this ground. I should add that the discovery procedure has not been used in these proceedings. It appears that the notice to produce procedure was utilised instead, on the basis that the parties accepted that this would lead to a more expeditious disposal of the proceedings. It seems to have been accepted that arguments based upon the inappropriateness of using a notice to effect a form of discovery would not be relied upon. 22 On the question of Joye's standing to seek the setting aside of the notice to produce and the subpoena, it may be noted that neither Bowyang, nor County, sought to set aside the notice or the subpeona. I am advised that Bowyang has produced to the Court all documents sought in the notice; likewise County. Neither has claimed that the process is oppressive to them, nor that they have been unable to ascertain, from the terms of the notice to produce and the subpoena, the documents which they are required to produce. However, it was held by both the Registrar and the Master that Joye had standing to seek the setting aside of the notice and the subpoena; this was, apparently, on the basis that the terms of those documents were too wide in that they required the production of documents irrelevant to the proceedings in that, although they were not necessarily transactions by him or on his behalf, they were not necessarily transactions involving Rehuxo. 23 The relevant rule relating to the setting aside of subpoenas is Pt 37 r 8. It provides as follows: "The Court may, of its own motion or on the motion of any person having a sufficient interest, set aside the subpoena wholly or in part." 24 This rule was considered by McLelland J in Compsyd Pty Ltd v Streamline Travel Service Pty Ltd (1987) 10 NSWLR 648 (at 649) where his Honour said: "That rule, by its terms, does not confine standing to make such an application to the person to whom the subpoena is directed; all that is required is that the moving party have a sufficient interest. On the other hand, I do not think that the mere fact that the moving party is a party to the proceedings necessarily establishes a sufficient interest in having the subpoena set aside. It would all depend on what interest existed, in fact, in the moving party in relation to the documents which the subpoena required to be produced. If, for instance, the documents were documents in which the moving party had a proprietary interest or if the documents contained information which the moving party claimed to be confidential to it, then, in my view, either of those situations would provide a sufficient interest to justify an application to set aside the subpoena. Another example is the very situation illustrated by the case R v Lewes Justices where the Crown, obviously, had a sufficient interest in seeking to set aside a subpoena addressed to someone else on the basis of public interest privilege in the contents of the documents sought to be produced. So I do not think that this application can be disposed of on the ground of standing without an examination of the connection, if any, between the documents sought to be required to be produced by the subpoenas in question on the one hand, and the defendants on the other." 25 I agree with the Master that these principles are applicable to a situation where a notice to produce is served on a party to the litigation by another party and a third party to the same litigation seeks to set it aside. A notice to produce between parties operates as a subpoena and the same principles should apply to it. I also agree that the fact that the documents have already been produced to the Court and are in the Court's custody should not preclude the bringing of this application prior to access being granted. 26 Is it appropriate, however, that standing be accorded to Joye simply on the basis that it is asserted, by way of submission, that the notice to produce and subpoena relate to, in part, documents which he asserts can have no relevance to the issues in the proceedings? It is to be noted that Joye has not provided any evidence as to the nature of the documents asserted to be irrelevant nor as to his "interest" in their not being produced to the Court. Although the question of proprietary interest or confidentiality referred to by McLelland J are, no doubt, not exhaustive as heads of "interest", they would be bases upon which Joye could assert a sufficient interest to have the process set aside. He has provided no evidence to this effect. Moreover, the assertion of irrelevance appears to me to be one that can only be satisfactorily determined by a consideration of particular documents in respect of which the claim is made. This appears to be a matter which falls for determination at a later stage. Nor has any attempt been made by Joye to separate out documents, the production of which would affect some "interest" of his, which would militate against their production to the Court. In my view, Joye has not demonstrated standing to seek to set aside the notice to produce or the subpoena. 27 Should I be wrong in this, I should add that I am also of the view that the terms of the notice to produce and the subpoena are not too wide. Each document requires production of the following: "1. All records, however compiled, recorded or stored recording or relating to: (a) the purchase, sale, transfer or holding of shares in Asian Properties Limited (formerly Coronet Far East Limited) ("the Company") by, to or from Bowyang Nominees Pty Limited;

(b) the identity of the parties on whose behalf Bowyang Nominees Pty Limited purchased, sold, transferred or held shares in the Company and the size of their respective shareholdings in the Company during the period June 1983 to September 1997. 2. All communications (including but not limited to instructions or directions from or to Ian Edward Joye or Robert Eric Horsell or anyone on their behalf) relating to the purchases, sales, transfers or holdings referred to in paragraph 1 above.

3. All documents or communications between Bowyang Nominees Pty Ltd and any other person relating to the submission or proposed submission by Bowyang Nominees Pty Ltd and/or Ian Edward Joye of any notice under New Zealand company legislation disclosing that Bowyang Nominees Pty Ltd or Ian Edward Joye held a relevant interest in shares in the Company for the period June 1983 to September 1997." 28 The basis upon which these demands were held to be too wide is that no mention is made in them of Rehuxo. It is contended on behalf of the plaintiffs and Joye that the subpoena could extend to APL shares held by Bowyang other than as nominee for Rehuxo. 29 As a result of arguments set out in detail in the written submissions on behalf of the Bradleys and developed at the hearing, I have come to the conclusion that the failure to limit the terms of the notice and the subpoena in this way does not result in their being too wide. 30 There is clearly a substantial question in the case as to what shares in APL were held by Bowyang from time to time on behalf of Rehuxo as trustee for the Susan trust. 31 Paragraphs 16 and 17 of the plaintiff's statement of claim read as follows: "16. (a) The fourth defendant ("Bowyang Nominees") has held since around 1992 some 2,978,340 shares in Asian Properties Limited ("APL"), a company listed in New Zealand, as nominee for Rehuxo as trustee for The Susan Trust. (b) The 2,978,340 APL shares are the principal asset of The Susan Trust.

17. Since 1983, Ian Joye has caused Rehuxo to hold as trustee assets, including the 2,978,340 APL shares held on its behalf by Bowyang Nominees, intending that they be used to benefit Judy Joye and her children." 32 Paragraphs 37 to 40 of the Bradleys' cross-claim read as follows: "37. On 1 December 1988 Joye, by his agent, Horsell, instructed Bowyang Nominees Pty Limited ("Bowyang") to hold for Rehuxo as trustee of the Susan Trust 6,285,950 shares in Coronet Far East Ltd and 873,939 shares in Coronet Equities No 2 Ltd. PARTICULARS The letter at p122 of the bundle to Mrs Bradley's affidavit is relied on ("the bundle"). 38. On 1 December 1989 Joye, by his agent, Horsell, and one Carol Lake, an employee of Horsell, purported to affix the seal of Rehuxo to share transfer forms transferring 323,000 shares in Coronet Equities NZ Ltd from Rehuxo to Bowyang. PARTICULARS The share transfer forms at pp125 and 126 of the bundle. 39. On 9 January 1989 Joye by his agent Horsell instructed Bowyang that 1,412,875 shares in Coronet Far East Ltd should be sold to Neny Investments Pty Ltd and Traikwish Pty Limited. PARTICULARS Page 124 of the bundle. 40. On 9 June 1993 Bowyang held 3,152,888 shares on behalf of Rehuxo in the Susan Trust. PARTICULARS Page 185 of the bundle." 33 Paragraph 41 asserts that the Bradleys had no knowledge of these transactions and, in particular, had no knowledge of transactions whereby shares held by Bowyang for Rehuxo in APL, were reduced from 6,285,950 as at 1 December 1988 to 3,152,888 as at 9 June 1993. 34 There also appears to be no issue between the parties that Joye and Horsell, neither directors of Rehuxo, caused these share dealings to be made. 35 I have been taken in detail to the records of share transactions which appear in tab 15 of the appeal book in these proceedings. They show considerable numbers of shares going in and out of the Susan trust over relevant years, those shares going into companies described as Neny, Traikwish and others, to which reference will be made later. In light of these transactions and their complexity, I am not prepared to say that the documents sought under this notice to produce and subpoena are obviously irrelevant, I am not prepared to set them aside on the basis that their terms are too wide. Objections to access on the basis of irrelevance can be determined at a later stage. 36 I should say that this view also applies in relation to the third paragraph of these documents. A major issue in the case is, the terms and beneficiaries of the Susan trust. It is clear that if the trust which Joye asserts in fact existed, then ss 5(1)(2) and 6 of the relevant New Zealand legislation would have provided him with "a relevant interest" in the shares held by Rehuxo. This would have required disclosure to the stock exchange in New Zealand if that interest, itself, or in conjunction with other interests resulted in his having a relevant interest of 5 per cent or more of the voting securities in APL. Submissions made have satisfied me that non-disclosure of such interest could indicate that the trust did not exist in the way alleged by Joye. The documents sought would bear upon this question. 37 A letter from Horsell of 16 January 1990 (appeal book tab 7, p 108) refers to a transfer of 3,250,000 shares to Rehuxo as trustee for the Susan trust on 7 December 1989. There is no mention of that holding in a substantial shareholder notice of 2 January 1990 filed with the NZ Stock Exchange. If the shareholding was held on the trust alleged by Joye, then, it would appear, a disclosure of such would have been appropriate in that notice. A failure to make such a disclosure would point towards the non-existence of the trust in that form. In these circumstances, I consider that the documents sought are relevant to that issue. 38 I, therefore, uphold the appeal in relation to this notice and subpoena. 39 I turn then to complaints made by the plaintiffs, Joye and Horsell in relation to the decision of the Master concerning notices to produce given by the Bradleys to Joye and to Horsell, dated 25 November 1997. It is submitted that the Master erred in failing to strike out paragraphs 8(a) to (d) and (f) to (i) in the notice given to Joye and paragraphs 5(a) to (d) and (f) to (i) in the notice to Horsell. The paragraphs are in identical terms and read as follows: "8. All communications, documents, financial or accounting records recording the purchase, sale or transfer of any shares in Asian Properties Ltd and/or Coronet Far East Limited during the Period:

(a) Traikwish Pty Limited; (b) Treskiss Pty Limited; (c) Hamerope Pty Limited; (d) Quoto Pty Limited; … (f) The York Trust; (g) Neny Investments Pty Limited; (h) Zytan Pty Limited; and (i) Bowyang Nominees Pty Limited." 40 These entities are all referred to in the material in appeal book, tab 15. This material shows extensive trading in APL shares and securities by the Susan trust and companies associated with Joye from 1 July 1983. 41 Company searches indicate that the companies, except for Zytan, which would appear to be a nominee company, are associated with Horsell and Joye. There is a clear issue in the case as to what Joye's purpose was in dealing with assets held by or for Rehuxo as trustee for the trust. It is asserted on behalf of the plaintiffs that it was his intention that Rehuxo hold the assets for the benefit of his wife and children. As already indicated, it is the Bradleys' contention that the transfer of shares in APL in and out of the Susan trust were effected by Joye not for the purpose of benefiting the plaintiffs, but to confer benefits upon himself or upon corporate entities in which he was interested. The material to which I have made reference, in tab 15 of the appeal book, indicates that many of the movements of shares in APL in and out of the Susan trust occurred contemporaneously, or nearly so, with dealing in the shares of other companies. Indeed there are instances where APL shares pass directly from the trust to one of these companies. It is the submission of the Bradleys that in order to achieve a true picture of Joye's intentions in relation to the Susan trust, its assets and alleged beneficiaries, it is necessary to consider the whole of these transactions. The material being sought in the notices to produce will assist in completing the picture and determining Joye's intentions. It is, accordingly, relevant. I agree with this submission and, accordingly, must respectfully disagree with the Master's finding on this point. 42 However, I am in agreement with him as to the basis upon which he upheld these parts of the notices. I concur with him in holding that they also go to that part of the Bradleys' cross-claim in which indemnity is sought for dealings in trust assets by Joye and Horsell, of which they assert they were in ignorance. The material, in my view, relates to their claim for indemnity in respect of these transactions. 43 The next matter for consideration is the contest in relation to paragraph 1 in the notice to produce to Joye dated 25 November 1997 and the identical material in paragraph 3 in the notice to produce to Judith Joye of the same date. 44 These paragraphs read as follows: "All original or copy documents recording or being communications by you, or on your behalf, with any of the Plaintiffs, or anyone on their behalf, for the period 1992 to date as to any property settlement, the provision of maintenance, or any proposed financial agreement to be entered into between you and Judith Joye as a result of your divorce from her involving Rehuxo Pty Limited ("Rehuxo") and/or The Susan Trust and any shares held in Rehuxo." 45 I have already referred to the fact that, in the cross-claim, the Bradleys assert that Joye's purpose in seeking to register the transfers of the Bradleys' shareholdings in Rehuxo and causing their resignation as directors, by activating their previously signed letters to that effect, was to enable him to give control of the assets of the trust to his wife, as part of their settlement under the provisions of the Family Law Act. The Master, in upholding this part of the notice to produce, placed reliance on a letter sent from Mr Joye to his wife. The relevant extract reads as follows: "I have shown good faith by initially transferring sole control of the Susan Trust to you which has net assets of $4 million. During 1996 I will tidy up the trust and rearrange the assets so that you have $5 million cash we agreed. Why else would I be transferring these assets to you?" 46 I consider that the documents sought in this part of these notices clearly relate to the issue of fact just referred to. They also relate to the broader issue of what were the terms of the trust and who were its beneficiaries. In relation to this part of the Master's decision, the appeal is rejected. 47 There remains only the appeal against the Master's order as to costs. The Master's decision in this regard was a discretionary one. In deciding upon the appropriate orders as to costs the Master considered that, "[o]n the matters argued before [him] the plaintiffs and cross defendants were unsuccessful on the majority of the matters argued." In the current cross appeal the second and third defendants have succeeded on grounds which were rejected by the Master, whilst in comparison, the plaintiffs and cross defendants in this appeal have had no further success. Had the second and third defendants been unsuccessful in the current cross appeal before me I am satisfied that no basis has been shown for interference with the Master's discretionary judgment. However, in the current circumstances, I consider that order 3 of the Master's decision should be set aside and in its place that it be ordered that the plaintiffs and cross defendants pay the costs of the second and third defendants of that appeal. 48 In the result I make the following orders:

2. That the appellants pay the costs of the respondents of the appeal.

4. To the extent that order 2 made by the Master on 28 October 1998 dismisses the cross-appellant's appeal from the decision of the Registrar of 20 May 1998 relating to the notice to produce to Bowyang and subpoena to County, that part of order 2 be set aside.

5. That the cross-appellants' appeal to the Master from the decision of the Registrar of 20 May 1998 relating to the notice to produce to Bowyang and subpoena to County be allowed.

6. That order 3 made by the Master on 28 October 1998 be set aside, and in lieu thereof, order that the plaintiffs and cross defendants pay the costs of the second and third defendants of the appeal before the Master.

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